The next bull run will catch people off balance - Crypto investors severely underestimate FOMO and how short memories are.
Cryptocurrencies, like any asset class, provide endless speculation. For every price shift, traders and investors love to point fingers and look for causations of what or whom popped the “bubble”. Chasing headlines becomes the norm and the cycle of hype and despair continues. It is obvious where we are currently at in that cycle. Just listen to the recent change of tone from the community. As despairing as the price action may be for some unseasoned enthusiasts, I can assure you this pain is only temporary.
Taking a look back into 2017, we saw the market capitalization of the cryptocurrency industry rise from $16 Billion all the way to the peak above $600 Billion near the end of the year. Even for cryptocurrencies, the word “strong” doesn’t do the climb justice. Bitcoin hit $20,000 and the cycle reached a new peak for the hype level and even Litecoin went from ~$4 to its peak of ~$300. There was more news coverage for Bitcoin in 2017 then the past 8 years combined. At this point, the price and hype began to be overbought by the existing user base and a subsequent return to the mean ensued. The moves were violent with an 70-80% drop in the price valuations across the board. Those swings seem irrational for what little news occurred unless you consider the small-scale of the marketplace and the immaturity of the average investor.
It is comforting to point to a specific headline and decide that must be the reason for the crash. Blaming it on manipulation, regulation, ICO saturation or technology roadblocks might overcomplicate the underlying reason. The type of investor that an unregulated, global market attracts is the root causation of the drop. News acts as the catalyst, but those investing into a market they don’t understand is not a very bullish mix. Being susceptible to degrees of extreme emotion is the definition of a novice investor. While the old “dumb money” excuse is overused often, it is pretty fair in this case but blaming them isn’t the point of this article.
The Unseasoned Investors And Wall Street
What makes cryptocurrencies such a powerful philosophical movement is this very same investor class. They are what make this shift in trust and decentralization meaningful. Every asset has their share of “dumb money”, or more accurately put “not the traditional investor”. For every other asset class and shift of money, they are the last ones to enter the space. The only investors in the cryptocurrency space at the beginning were those technology enthusiasts. It started as some grassroots following that has slowly built up, under the radar of the 1%.
The inexperience of this new class of investors may have caused a crash based in fear, uncertainty and doubt, yet they are not alone in the space anymore. A valuation climb like 2017 does not go unnoticed by those of existing wealth. The space has proved itself both from a technical and financial level in the eyes of the public.
Regulation in the meantime has shaken out and institutions are slowly but surely getting the green light to dip their toes in the water. As disheartening as regulation may seem to libertarians, a strong regulatory foundation is needed for more money to enter the space. When Wall Street analytics call crypto the “Wild Wild West”, you know it under regulated.
Personally, I can’t wait to watch some documentary five years from now on how rampant the manipulation really was in the early days of crypto. The stories will make for some great television. Wall Street has been drooling all year at the gains everyday people have been making while they sit behind their desk, restricted to stagnant markets.
Says every… Institutional desk, Hedge Fund, Money Manager, Family Office, Corporation, Bank, and industry.
The Future of Cryptocurrency Post-Institution Investing
This is all changing and the infrastructure to allow this change has been built slowly over the last few years. I could list two dozen articles about large money managers entering the space. This week alone we saw some of the largest players in the global financial markets enter cryptocurrencies. Goldman Sachs announced a cryptocurrency desk a few months ago and JP Morgan now allows for Bitcoin futures to be traded. For every major headline, there are hundreds of money managers, firms, family offices, and corporations rushing into the space behind it unannounced.
These institutional investors are in the crypto markets for the sole purpose of making money. The current technology enthusiast-based community has adopted a policy of holding their coins no matter the cost. This however results in lower volume, and in turn, speeds up the price fluctuations. Markets are much more volatile when volume is lower. It also means that if these old Wall Street players want to partake in the game, they need to acquire cryptocurrencies in some sizeable quantities. The cycle is currently low when it comes to general excitement in the public space, with a turn upwards being imminent. As we near the bottom of the market, with weak hands long since shaken out and only hodlers remaining, a fresh injection of capital can mean only one thing: a bull run unlike one we have ever seen. If Bitcoin can rise to $20,000 with little to no institutional backing, then the stage has been set for a fun ride ahead for those that hodl.
Cheers!